ANNUAL REPORT 2008 - Polymer Bank Notes of the World

The defined benefit obligation is calculatedannually by independent actuaries using theprojected unit credit method. The present valueof the defined benefit obligation is determinedby discounting the estimated future cash flows,using interest rates of high quality corporatebonds that are denominated in euro and havesimilar terms of maturity to the term of therelated pension liability.Actuarial gains and losses can arise fromexperience adjustments (where actual outcomesare different from the actuarial assumptionspreviously made) and changes in actuarialassumptions.PROFIT AND LOSS ACCOUNTThe net amount charged to the Profit and LossAccount comprises:(a) the current service cost of the benefitsaccruing for the year;(b) interest at the discount rate on the definedbenefit obligation;(c) the expected return on the plan assets; and(d) any actuarial gains and losses recognised inthe Profit and Loss Account, using a “10%corridor” approach.“10% CORRIDOR” APPROACHNet cumulative unrecognised actuarial gains andlosses which exceed the greater of (a) 10% of thepresent value of the defined benefit obligationand (b) 10% of the fair value of plan assets,are to be amortised over the expected averageremaining working lives of the participatingemployees.PENSIONS OF EXECUTIVE BOARD MEMBERS ANDOTHER POST-RETIREMENT OBLIGATIONSUnfunded arrangements are in place for thepensions of members of the Executive Boardof the ECB and disability benefit provisions forthe staff. The expected costs of these benefitsare accrued over the Executive Board/staffmembers’ terms of office/employment using anaccounting approach similar to that of definedbenefit pension plans. Actuarial gains andlosses are recognised in the same manner asoutlined above.These obligations are valued annually byindependent actuaries to establish the appropriateliability in the financial statements.BANKNOTES IN CIRCULATIONThe ECB and the euro area NCBs, whichtogether comprise the Eurosystem, issue eurobanknotes. 5 The total value of euro banknotes incirculation is allocated to the Eurosystem centralbanks on the last working day of each month inaccordance with the banknote allocation key. 6The ECB has been allocated a share of 8% ofthe total value of euro banknotes in circulation,which is disclosed under the Balance Sheetliability item “Banknotes in circulation”. TheECB’s share of the total euro banknote issue isbacked by claims on the NCBs. These claims,which bear interest, 7 are disclosed under thesub-item “Intra-Eurosystem claims: claimsrelated to the allocation of euro banknotes withinthe Eurosystem” (see “Intra-ESCB balances/intra-Eurosystem balances” in the notes onaccounting policies). Interest income on theseclaims is included within the item “Net interestincome”. This income is due to the NCBs in thefinancial year in which it accrues, but isdistributed on the second working day of thefollowing year. 8 It is distributed in full unless5 Decision ECB/2001/15 of 6 December 2001 on the issue of eurobanknotes, OJ L 337, 20.12.2001, p. 52, as amended.6 “Banknote allocation key” means the percentages that result fromtaking into account the ECB’s share in the total euro banknoteissue and applying the subscribed capital key to the NCBs’ sharein that total.7 Decision ECB/2001/16 of 6 December 2001 on the allocation ofmonetary income of the national central banks of participatingMember States from the financial year 2002, OJ L 337,20.12.2001, p. 55, as amended.8 Decision ECB/2005/11 of 17 November 2005 on the distributionof the income of the European Central Bank on euro banknotesin circulation to the national central banks of the participatingMember States, OJ L 311, 26.11.2005, p. 41.222 ECBAnnual Report2008